Authors: Li Yuqian and Pan Che
Posted on: Caixin Global, March 28th, 2017
Chinese industrial companies’ year-on-year profits surged in the first two months of 2017, the National Bureau of Statistic (NBS) figures showed Monday.
Profits of Chinese industrial firms jumped 31.5% in the first two months year-on-year, picking up sharply from an 8.5% year-on-year increase in 2016 and a 2.3% year-on-year increase in December, largely due to rising prices in industries like coal mining, petroleum and natural gas.
Total industrial profits amounted to 1.02 trillion yuan ($148 billion) in the first two months, while industrial firms’ operational revenue growth also accelerated to 13.7% year-on-year, versus a 4.9% increase in 2016, official data showed.
China’s economy got off to a good start in 2017 on better-than-expected economic data. Urban fixed-asset investment grew 8.9% year-on-year, and industrial output gained 6.3% in the first two months of 2017.
China’s producer price index (PPI), a major gauge of producer inflation, rose 7.3% in the first two months, which an NBS expert said has led to a 1.17 trillion yuan increase in operational revenue, accounting for about 6.8% of total operational revenue worth 17.1 trillion yuan.
Improvement in profits was mainly enjoyed by so-called upstream industries, or those that process raw materials. Most of these are state-owned enterprises (SOEs) specializing in coal mining and dressing, ferrous metals, petroleum and natural gas. Private firms’ recovery underperformed by comparison.
Industrial profits of SOEs grew 100.2% year-on-year, compared with a combined 14.9% increase in private-sector firms during the first two months of the year.
An overall improvement in industrial profits indicated a strong recovery of profitability and cash flow, China International Capital Corp. said in a research note published on Monday.
However, investment by private companies will be dampened if their gains are squeezed by SOEs, which will create a hurdle for the overall recovery of profitability of industrial firms, analysts said.
“Despite the growth of industrial profits, an apparent dissonance is reflected in the structure of the profit growth, whether the rising trend lasts hinges on the interactions between SOEs and private companies, upstream and midstream-downstream firms, as well as investment and consumption,” said Lian Ping, chief economist of Bank of Communications.